A producer received Rs.6.000 when the price of a commodity was Rs.60 per unit. The receipts increased to Rs. 8,400 when the price increased by Rs.10 .Calculate elasticity of supply?
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Given - Original receipts - Rs. 6000
Original cost per unit - Rs. 60
New receipts - Rs. 8400
New cost per unit - Rs. 70
Find - Elasticity of supply.
Solution - Original Quantity of goods - 6000/60 - 100 units.
New quantity of goods - 8400/70 - 120 units.
Formula for elasticity - (∆Q/Q)/(∆P/P). In the formula, (∆Q/Q) are change in quantity and original quantity and (∆P/P) are change in price and original price.
Keeping the values in equation-
Elasticity - (20/100)/(10/60)
Elasticity - (20*60)/(10*100)
Elasticity - 1200/1000
Elasticity - 1.2.
Thus elasticity is 1.2.
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